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1.

History of Insurance Law in the Philippines

a. PRUDENTIAL GUARANTEE & ASSURANCE INC. V. TRANS-ASIA SHIPPING LINES, INC. 491
SCRA 411
The Insurance Act is however, copied almost verbatim from the California Insurance Act,
with exception of Chapter V thereof which was taken largely from the insurance law of
New York.

Principle found in the case: Section 343 and 344 applies when there is unreasonable delay or refusal in
the payment of the insurance claims which could force the insured to file a case thus entitling him of
attorney’s fees.

FACTS: TRANS-ASIA is the owner of the vessel M/V Asia Korea. PRUDENTIAL insured M/V Asia
Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and
explosion for the sum of P40 Million, from July 1, 1993 up to July 1, 1994. Evidenced by Marine
Policy. On October 25, 1993, while the policy was in force, a fire broke out while M/V Asia Korea
was undergoing repairs at the port of Cebu.

TRANS-ASIA filed its notice of claim for damage sustained by the vessel. Evidenced by a
letter/formal claim. It reserved its right to subsequently notify PRUDENTIAL as to the full amount
of the claim upon final survey and determination by average adjuster Richard Hogg International
of the damage sustained by reason of fire. Adjuster’s report was submitted.

TRANS-ASIA executed a document denominated “Loan and Trust Receipt, amounting to 3M,
without interest, repayable only in the event and to the extent that any recovery is made by Trans-
Asia Shipping Corporation.

TRANS-ASIA’s claim was DENIED, not compensable because there was a breach of policy
conditions, WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. Followed by a letter
requesting the return of payment of 3M within the period of ten (10) days from receipt of the
letter.

TRANS-ASIA filed a COMPLAINT FOR SUM OF MONEY against PRUDENTIAL with the RTC of Cebu
City praying for the payment of P8, 395,072.26 from PRUDENTIAL as the balance of the indemnity
with 42% interest per annum.

PRUDENTIAL denied the material allegations of the complaint and set a defense that TRANS-ASIA
breached insurance policy conditions; that it incurred no liability to TRANS; that TRANS has no
cause of action; and that its claim has been effectively waived and/or abandoned or it is estopped
from pursuing the same. PRUDENTIAL sought a refund of P3M which it allegedly advanced to
TRANS by way of loan without interest.

RTC ruled in favor of the Prudential. It interpreted the provision to mean that TRANS is required
to maintain the vessel at a certain class at all times pertinent during the life of the policy.
According to the court, TRANS failed to prove compliance of the terms of the warranty, which
entitled PRUDENTIAL to rescind the contract. It further ruled that the concealment made by
TRANS that the vessel was not adequately maintained to preserve its class was a material
concealment sufficient to avoid the policy and thus entitled the injured party to rescind the
contract.

The court of appeals reversed the decision. It ruled that PRUDENTIAL, as the party asserting the
non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge. It considered PRUDENTIAL’s admission that at the
time the insurance contract was entered into between the parties, the vessel was properly classed
by Bureau Veritas, a classification society recognized by the industry. It similarly gave weight to
the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average
adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that
mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the
insurance policy. Also the C.A. ruled that TRANS-ASIA is entitled to the unpaid claims covered by
Marine Policy, or a total amount of P8,395,072.26 however even if there was unreasonable denial
or withholding of the payment of the claims due Trans-Asia is still not entitled to pay for attorney’s
fees for it can only be awarded in the cases enumerated in Article 2208 of the Civil Code. But
Trans-Asia is entitled to double interest on the policy for the duration of the delay of payment of
the unpaid balance, citing Section 244 of the Insurance Code.

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration
and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the
Court of Appeals in the Resolution dated 29 January 2002.

ISSUE:

WON Prudential should pay Trans-Asia the unpaid claims covered by the marine policy including
attorney’s fees.

RULING: Yes.

Rationale:

Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses
incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case
may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover,
the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount
of the claim due the insured from the date following the time prescribed in Section 242 or in
Section 243, as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the
failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as
prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that
attorney’s fees be granted. As earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim
within the time fixed in both Sections 242 and 243 of the Insurance Code.

As established in Section 244, by reason of the delay and the consequent filing of the suit by the
insured, the insurers shall be adjudged to pay damages which shall consist of attorney’s fees and
other expenses incurred by the insured.
Section 244 reads:

“In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as the case
may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within
the time prescribed in said sections shall be considered prima facie evidence of unreasonable
delay in payment.”

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or
refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in “M/V
Asia Korea”, TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg
International (Phils.), Inc., completed its survey report recommending the amount of
P11,395,072.26 as the total indemnity due to TRANS-ASIA. On 21 April 1997, PRUDENTIAL, in a
letter addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26
representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second
letter to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997,
TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying,
inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance
claim. As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims,
from the time proof of loss was shown and the ascertainment of the loss was made by the
insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s
unpaid claims compelled the latter to file a suit for collection. Succinctly, an award equivalent to
ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is
reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26.
In the case of Cathay Insurance, Co., Inc. v. Court of Appeals, where a finding of an unreasonable
delay under Section 244 of the Insurance Code was made by this Court, we grant an award of
attorney’s fees equivalent to ten percent (10%) of the total proceeds. We find no reason to
deviate from this judicial precedent in the case at bar.
b. Constantino v. Asia Life Inc. 87 Phil. 248

When the statute has been adopted from some other state or country and said statute has
previously been construed by the courts of such state or country, the statute is deemed to have
been adopted with the construction given.

FACTS: There are two cases consolidated here. First is that of Arcadio Constantino who acquired a life
insurance from Asia Life Insurance Company in September 1941. He paid the first premium which was
good until September 1942. War broke out and he was not able to pay the second and subsequent
premiums. He died in 1944. His beneficiary was Paz Lopez De Constantino.

The second case was that of Tomas Ruiz who acquired his life insurance from Asia Life in August 1938. He
has been paying his premium religiously but due to the war, he was not able to pay his subsequent
premiums in 1942. He died in 1945. His beneficiary was Agustina Peralta.

The beneficiaries from both insurance policies filed their claims when the war is over. They point out that
the obligation of the insured to pay premiums was excused (suspended) during the war owing to
impossibility of performance, and that consequently no unfavorable consequences should follow from
such failure (New York Rule).

Asia Life argued that the nonpayment of premiums cancelled the insurance policy. An insurance contract
is one in which time is material and of the essence. Non-payment at the day involves absolute forfeiture
if such be the terms of the contract (United States Rule).

ISSUE: Whether or not the beneficiaries are entitled to the claims.

HELD: No.

After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a
vital defense of insurance companies that since the very beginning, said Act no. 2427 expressly preserved
it, by providing that after the policy shall have been in force for two years, it shall become incontestable
(i.e. the insurer shall have no defense) except for fraud, non-payment of premiums, and military or naval
service in time of war (sec. 184 [b], Insurance Act). And when Congress recently amended this section
(Rep. Act No. 171), the defense of fraud was eliminated, while the defense of nonpayment of premiums
was preserved. Thus the fundamental character of the undertaking to pay premiums and the high
importance of the defense of non-payment thereof, was specifically recognized.

The Supreme Court adopts the United States Rule. It should be noted that the parties contracted not
only for peacetime conditions but also for times of war, because the policies contained provisions
applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated
uninterrupted operation of the contract even if armed conflict should ensue.

It should be noted that the parties contracted not only for peacetime conditions but also for times of war,
because the policies contained provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the contract even if armed conflict
should ensue.
2. Contract of Insurance (Sec. 2-5)
Section 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:

(a) A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.

A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business as hereinafter provided.

(b) The term doing an insurance business or transacting an insurance business, within the meaning of this Code, shall
include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade
the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive
to show that the making thereof does not constitute the doing or transacting of an insurance business.

(c) As used in this Code, the term Commissioner means the Insurance Commissioner.

CHAPTER I
THE CONTRACT OF INSURANCE
TITLE 1
WHAT MAY BE INSURED

Section 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured against, subject to the provisions of this chapter.

The consent of the spouse is not necessary for the validity of an insurance policy taken out by a married person on his or
her life or that of his or her children.

All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of the person insured
shall automatically vest in the latter upon the death of the original owner, unless otherwise provided for in the policy.

Section 4. The preceding section does not authorize an insurance for or against the drawing of any lottery, or for or against
any chance or ticket in a lottery drawing a prize.

Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the provisions can apply.

a. Travelers Insurance & Surety Corporation v. Hon. Court of Appeals, GR No. 82036, May 22, 1997

FACTS: A 78 year old woman, Feliza Vineza de Mendoza, was on her way to hear mass at the Tayuman
Cathedral. She was bumped by a taxi that was running fast. Several persons witnessed the accident. She
was brought to the hospital, Mary Johnston Hospital, by a good Samaritan, Marvilla. She referred to the
National Orthopedic Hospital because of the fractured bones but she was brought to the UST where she
expired at 9am on the same morning. Death was caused by a traumatic shock as a result of severe injuries
she sustained.

Private respondent, Vicente Mendoza, filed a complaint for damages against Armando Abellon as the
owner of the Lady Love Taxi and Rodrigo Dumlao as the driver. Subsequently, private respondent
amended his complaint to include petitioner TRAVELERS INSURANCE as the COMPULSORY INSURER of the
said taxicab.
Trial Court rendered in favor of the private respondent ordering Armando Abellon, the owner, Rodrigo
Dumlao, driver, and the Travelers Insurance to pay jointly and severally the heirs of the late Feliza Vineza
de Mendoza.

Petitioner appealed but it was DENIED by the CA. Hence this petition.

ISSUE: Whether or not Travelers Insurance is liable to private respondent?

RULLING: No.

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by
petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings,
we are constrained to rule that respondent appellate court committed reversible error in finding
petitioner liable under an insurance contract the existence of which had not at all been proven in court.
Even if there were such a contract, private respondent’s cause of action cannot prevail because he failed
to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal
provision, to have waived his rights as against petitioner-insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third persons also or on the insured. And the test applied has
been this: Where the contract provides for indemnity against liability to third persons, then third persons
to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss
or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse
the insured for liability actually discharged by him thru payment to third persons, said third persons’
recourse being thus limited to the insured alone.”